Most investors believe that in order to find the largest returns, you need to accept the largest risk.
Not only is this wrong. It’s backwards.
Let me back up.
Warren Buffet might be the most legendary investor alive. The “Oracle of Omaha” bought his first stock when he was 11 years old. No living investor has a better track record of beating the market. The Oracle has two very simple investing rules:
Never lose money
Don’t forget rule number one
Great advice, but how do you action this?
Let’s lean on a second Titan for his golden rule, Billionaire Hedge Fund Manager, Paul Tudor Jones. Jones is another of the world's most prolific investors, yet he self describes as the “single most conservative investor on earth”. He is famous for his 5:1 asymmetric risk strategy. Meaning - he is only willing to risk a dollar if he can see $5 coming back:
“I’m looking for 5:1. Five to one means I’m risking one dollar to make five. What five to one does is allow you to have a hit ratio of 20%. I can actually be a complete imbecile. I can be wrong 80% of the time, and I’m still not going to lose.”
Asymmetric bets. That’s how you action it.
There is no golden rule to investing. We need to gather as many perspectives as possible and develop our own strategy. Borrowing from these two icons is a good start.
Back to my argument that the largest returns don't always require largest risk...
In the super volatile small cap sector, risk and reward can be negatively correlated. If you pay strict attention to the people - you will see that as potential reward goes up, risk goes down. It’s the opposite of what most people think when they consider high risk / high reward.
The small cap sector is a people game. When you write a cheque you are making a bet on the judgment and decision making of one or two individuals who will be controlling your money. You are betting they will surround themselves with the right people, tirelessly complete diligence on business opportunities and have an inexhaustible supply of energy to keep pushing towards Plan C, when both Plan A and B fail.
Never bet on the guy who goes to sleep on the first punch.
Specifically, in the junior mining market there is a firm line in the sand between the top 10%, and the bottom 90%.
I preach about people above all else - and I start with the money people.
CEO of Sprott Resource Corp., Rick Rule, told me point blank “ I would have made 10X as much money and only had to work 10% as hard if I had only ever invested in the same 4 or 5 people.”
Why is that?
Asymmetric risk. Some people have it, some people don’t.
How do you find the ones that have it? Follow the smart money. It’s a small sector - it's actually not that hard to do.
If you did nothing more in the next three years but copycat the moves of Sprott CEO, Rick Rule, Katusa Research founder, Marin Katusa and US Global CEO, Frank Holmes, your life would change dramatically.
You wouldn’t get the same terms as them. You would miss some ten bagger anomalies that didn’t meet their standards. But, you would 100% be in the company of CEO’s and money managers who have consistently found those asymmetric bets.
And they aren’t looking for 5:1, they are looking for 10:1. They’ve got to be wrong 9 times before they lose money. Are they wrong 9/10 times? They’ve all built careers proving they aren't.
Marin Katusa is a close friend and I am a premium subscriber. I talk to Rick Rule regularly, and every single chance I get. Frank Holmes has been a mentor of mine for years, he is a fighter, an industry vet and consistently a top performing money manager.
If you want to become a billionaire, find some billionaires that let you tag along.
I am aware that is ridiculous advice. So maybe just read my letter. These guys give me way more time than I deserve.
Right now the precious metals market is on fire. It is just getting started. There will be terrifying pullbacks. But history will repeat itself: 5% of the players will deliver 95% of the returns.
I’ve gotten my hands dirty with more company endorsements than usual lately. I want to share our track record at Cambridge to emphasize that we are very particular about who we work with.
If you took our lead into the companies when we encouraged you to take a look, you are up 115% in a remarkably short amount of time:
Since we published:
EMX is up +56%
LDG is up +76%
WTX is up +79%
AUG is up +81%
BARI/NGLD is up +169%
MAX is up +232%
Yes, the market is on fire - and I am no genius investor. I don’t have a decades long track record to back me up. I don’t manage other people’s money, and I don’t give investment advice.
But I have rules, and I follow them. And they work for me. This is where I talk about it.
You are the company you keep, so let’s be in that top 5%. I am not going anywhere else. Stick with me, and it will be a fun few years.
Celebrating a Win
As most of you know, I host a Youtube channel where I have conversations with investors from all over the world, talking about growing and protecting wealth.
Last month I received this baby in the mail: